IJOART...In this paper, we try to investigate the effects of the Stolper-Samuelson theory, which uses the Heckscher-Ohlin model to predict the strong relationship between the change
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THE IMPORTANCE Of MODERN TRADE
AND THE STOPLER-SAMUELSON
THEORM IN TRADE AND WAGES DEBATE
Name: AHMED KADHUM JAWAD AL-SULTANI
M. Number: P89671
IJOART
International Journal of Advancements in Research & Technology, Volume 7, Issue 4, April-2018 ISSN 2278-7763 1
According to Samuelson (1994), cooperation on Wolfgang Stolber's efforts to reconcile the new general
business theory with the work of former economists has arisen: "How can Haverler and Tosip be right in
the necessary damage to multi-factor factors such as the work of US tariffs, In the long run, free trade
will increase the demand for relative goods in the country, and thus divert labor to the labor market. To
local industries, where labor is more productive, and classical economists typically lack a single working
model or, equally, that production factors are used in varying proportions both within and between
industries, and in both cases, trade can not have redistribution effects within Although the teachers and
citizens of Samuelson recognized the impact of the change in the ratio of factors to income shares, their
analyzes were based on a partial equilibrium model of a protected industry. Goods from Supposed to be
the biggest. Thus, real wages were expected to rise, at least in terms of imported goods, and most likely
in general, although the impact would depend on the relative importance of exported goods exported in
total labor expenditures(1). . The General Trade Theory of the General Budget presented by Elie Hecker
and Beryl O'Haleen opened a new investigative line that focuses on differences in the intensity of relative
factors across industries and differences in the abundance of relative factors between countries.(2)
Stolber and Samuelson adopted this approach and adopted the standard Hachser-Ohlin terminology now
to refer to the proposition that "each country will export those goods that are produced by relatively
abundant production factors and will import those goods where relatively rare factors are important..
(1) Stolper and Samuelson provide illustrative quotations and references. One quote from Haberler rejects the possibility of
equalization of wages across countries unless labor is internationally mobile. As of 1941, Stolper and Samuelson agreed,
noting that “there will be a tendency—necessarily incomplete—toward an equalization of factor prices” due to trade. A few
years later, however, Samuelson (1948, 1949) would show that, under stipulated conditions, free trade alone is sufficient to
equalize factor prices. A footnote to Samuelson (1949) indicates that Abba Lerner presented essentially the same result in a
1933 paper prepared for a seminar at the London School of Economics. Perhaps due to Samuelson’s acknowledgment, the
paper was finally published as Lerner (1952). (2)Ohlin’s landmark treatise was published by Harvard University Press in 1933. The basic work by Heckscher and by his
student Ohlin had been available a decade earlier, but only in Swedish. Heckscher’s seminal 1919 article. .
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International Journal of Advancements in Research & Technology, Volume 7, Issue 4, April-2018 ISSN 2278-7763 5
Points along the contract curve indicate alternative efficient allocations of the two factors between
industries and thus alternative efficient output combinations for the economy, with a one-to-one
correspondence between points on the contract curve and points on the economy’s production possibility
frontier. At the corners of the box representing specialization in one of the two products, the capital-labor
ratio in the industry of specialization must equal the country’s overall capital-labor ratio. In between,
where both goods are produced, the capital-labor ratios in the two industries change systematically, with
both falling monotonically as the economy moves from production only of labor-intensive B toward
production only of capital-intensive A. as a consequence of the changing capital-labor ratios in the two
industries, the physical marginal product of labor must fall, and the physical marginal product of capital
must rise, in both industries as the economy produces more A and less B.The actual output combination
produced depends on the relative price PA/PS although their original motivation was to shed new light on
the effect of protection on wages, Stolper and Samuelson avoided further consideration of the details of
trade by focusing on the resulting.change in the domestic relative price of the goods.(4) .Their result is
thus applicable to a change in relative price that occurs for any other reason. Trade would reduce the
relative price of the import-competing good, which by the Heckscher-Ohlin theorem was assumed to be
labor-intensive B for the United States, a labor-scarce country.(5). The lower relative price of good B
would cause a shift in the economy’s production toward good A—a movement along the production
possibility frontier and the contract curve in the Edgeworth-Bowley box. If each industry were to use the
same factor proportions as before, the change in output mix would raise the country’s total demand for
capital and reduce its total demand for labor. Given fixed total factor supplies and full employment of
both factors before and after the rise in relative price of good A, the new output mix would thus be
feasible only if both industries were now to employ a lower capital-labor ratio, or equivalently, if there
was a rise in the rental-wage ratio facing the firms in both industries. These lower capital-labor ratios
imply a lower marginal physical product of labor in both industries and thus an unambiguously lower real
wage (and higher real rental) measured in terms of either good. This outcome is independent of the
pattern of consumption.
(4)Samuelson (1939) used the same simplification in examining a country’s gains from trade. (5)This was of course long prior to Leontief (1954) and illustrates the ready acceptance by international economists of the
empirical validity of the Heckscher-Ohlin theory.
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International Journal of Advancements in Research & Technology, Volume 7, Issue 4, April-2018 ISSN 2278-7763 7
productivity in industry 2 benefits relative skilled wages depends on whether the increased consumer demand for good 2 outweighs the reduction in employment per unit of production - ie if the elasticity of substitution in consumption exceeds unity.
In figure 1, the relationship between endowments and wages in an open, H-O economy is shown by the
thick solid line. Comparison with dashed line for a closed economy shows that in the H-O case, rather
than producing both goods, and gradually shifting towards good 2 as relative skill endowments S/U rise,
the economy is now completely specialised in good 1 at skill endowments less than E* and completely
specialised in good 2 at skill endowments greater than E**. Between those two levels the country will
produce both goods, with both skilled and unskilled wages set on international markets at a wage ratio
W*, which is the wage ratio at which the two industries are equally profitable (given world prices and
technology).Points to note are:
1) Substitution in consumption plays no part in determining wages, output or employment in a small,
open H-O economy. Prices of the two goods are set on world markets and unaffected by patterns of
domestic demand.
2) Over the range E* to E**, changes in endowments do not affect relative wages. Outside that range,
the economy behaves like a single representative firm model.
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International Journal of Advancements in Research & Technology, Volume 7, Issue 4, April-2018 ISSN 2278-7763 9